Macau ops get 2019 deadline to revamp smoking lounges

The Macau government is proposing the city’s casinos be given until the start of 2019 to implement the more stringent smoking lounge standards being proposed by local officials. The deadline is included in a revised draft bill dealing with smoking inside casinos. The document has been submitted to the Legislative Assembly by the government.

A note on Wednesday from brokerage JP Morgan Securities (Asia Pacific) Ltd said the impact on gross gaming revenue (GGR) of the revised bill should be “manageable” for casino operators. The institution expects the new rules – if approved – to have a sector wide impact equal to approximately 5 percent of GGR in 2019.

“Casinos will need to upgrade/install smoking lounges (that meet higher technical specifications) and to disable smoking at VIP tables by the end of next year,” said the note from analysts DS Kim and Sean Zhuang.

The government had previously proposed that what it termed an updated regime on tobacco control for Macau should ban entirely smoking in the city’s casinos. But in a briefing held last month, the Health Bureau announced a proposal to retain smoking lounges in the city’s casinos, in exchange for higher technical standards for such facilities.

Under the revised plan outlined in the February briefing, tobacco use at VIP gambling tables is to be banned and high rollers would instead need to use smoking lounges. Smoking lounges would still be allowed on casino main floors, but subject to the enhanced technical standards.

Macau’s Legislative Assembly began discussing in July 2015 the original draft bill proposing revisions to the city’s tobacco control regime. A majority of the 10 members of its working committee tasked with scrutinising the earlier draft had in May 2016 suggested the retention of smoking lounges in casinos might be feasible with proper safeguards.

The government’s revised draft bill was discussed by the committee for the first time on Tuesday. Committee president Chan Chak Mo told reporters after the meeting that all necessary work on scrutiny and approval could be completed by April.

The revised draft bill must be passed before the end of the current legislative term in August. If that deadline is missed, the proposed legislation would fall, and the process would have to start afresh.

The draft bill as revised by government had not been published on the website of the Legislative Assembly at the time this story went online.

Legislator and businessman Mr Chan said the proposed date of enactment of the bill was January 1, 2018, with casinos given 12 additional months to adapt to the new standards for smoking lounges.

He added that the new, more stringent standards would be set in a separate executive order by the government. Executive orders do not need to be approved by the Legislative Assembly.

Macau’s Health Bureau is still in discussion with the city’s six casino operators regarding how to ensure smoking lounges on casino floors have enhanced technical standards, the bureau’s deputy director Cheang Seng Ip told local media on Sunday. Both parties seem however to have agreed on implementing a so-called “negative pressure” mechanism in smoking lounges to be set at -5 pascals. Casino operators had previously suggested a negative pressure level of -1 pascal.

The enhanced standards seek to ensure smoke from such facilities is pumped away from nearby non-smokers in a more efficient manner.

Impact manageable: JP Morgan

Commenting on the revised Macau government proposal on smoking in casinos, brokerage JP Morgan said it appeared to be a “good compromise”.

“Though somewhat expected, a new proposal is far more lenient than the previous version (submitted to the Legislative Assembly in June 2015), which urged a ‘complete blanket ban’ on smoking inside casinos (not even in smoking lounges),” analysts Mr Kim and Mr Zhuang wrote in a Wednesday note.

They added: “The impact [for gaming revenue] under a new proposal should be relatively limited.”

JP Morgan noted that, if passed, the revised bill would only impact gaming demand in segments where tableside smoking is still a possibility – namely VIP and premium mass – “possibly reducing such revenues by about 10 percent in the first year” of implementation of the new rules in casinos.

The brokerage added: “Put differently, we believe the sector-wide impact to be about 5 percent of estimated 2019 GGR… or approximately 3 percent of EBITDA [earnings before interest, taxation, depreciation and amortisation]… It’s not nothing, but manageable.”

JP Morgan also stated that the targeted implementation for the new smoking lounge standards – January 2019 – “looks to be meaningfully later than what we and the market had expected (i.e., sometime later this year, or beginning of next year) which, in turn, should allow the market to study the potential impact and manage expectations accordingly.”

A partial smoking ban in Macau casinos was first implemented in January 2013. At the time, operators were allowed to divide their main floors into smoking- and non-smoking areas.

After some casinos – most of them under the licence of SJM Holdings Ltd – had failed two rounds of air quality tests, a full smoking ban in all mass market casino floors in Macau was implemented in October 2014. Under the measure, smoking on casino main floors in Macau is currently only allowed in airport-style enclosed smoking lounges that do not contain any gaming tables or slot machines. Having a cigarette while gambling is at present still allowed in Macau casino VIP rooms.

The bill currently being discussed in Macau’s Legislative Assembly covers not only the issue of smoking inside casinos, but would also regulate the use of electronic cigarettes, and impose a ban on their use in all public spaces, including casinos. Under the new bill, fines for lighting a cigarette in prohibited areas would be increased.

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